Main Causes of the Great Depression

The article begins:

"Many factors played a role in bringing about the depression; however, the main cause for the Great Depression was the combination of the greatly unequal distribution of wealth throughout the 1920's, and the extensive stock market speculation that took place during the latter part that same decade.  The maldistribution of wealth in the 1920's existed on many levels.  Money was distributed disparately between the rich and the middle-class, between industry and agriculture within the United States, and between the U.S.  and Europe.  This imbalance of wealth created an unstable economy. 

  and Gusmorino's main points are:

Main Causes

a.  Unequal Distribution of Wealth:

- Disparity between the rich and middle-class, industry and agriculture, U.S.  and Europe. 

- Unstable economy due to wealth imbalance. 

Economic Disparity

a.  Wealth Distribution:

- Top 0.1% had income equal to the bottom 42% in 1929. 

- Top 0.1% controlled 34% of savings; 80% had no savings. 

- Example: Henry Ford earned $14 million; average income was $750. 

b.  Government Policies:

- Revenue Act of 1926 reduced income and inheritance taxes. 

- Supreme Court ruling in Adkins v.  Children’s Hospital opposed minimum-wage legislation. 

Economic Imbalance

a.  Demand and Supply:

- Oversupply of goods due to uneven income distribution. 

- 75% of the population spent all their income on consumer goods. 

- Top 25% of the population earned over 55% of national income. 

b.  Credit Sales:

- Installment credit became popular; 60% of cars and 80% of radios bought on credit by late 1920s. 

- Outstanding installment credit doubled from 1925 to 1929. 

- Putting off to the future tied up income so that, when the future came, there was nothing to spend

Reliance on the Wealthy

a.  Luxury Spending and Investment:

- Economy dependent on wealthy's confidence and spending. 

- Excessive investment led to overproduction and market speculation. 

Industry Disparity

a.  Corporate Wealth:

- 200 corporations controlled half of corporate wealth in 1929. 

- Agriculture suffered while the automotive industry thrived. 

Government Influence

a.  Federal Policies:

- Favored automotive and radio industries over agriculture. 

- Post-WWI subsidies for agriculture ended abruptly, causing farm prices to plummet. 

Economic Consequences

a.  Industry Dependence:

- Over-reliance on automotive and radio industries made the economy vulnerable. 

- Economic collapse when these industries slowed down. 

b.  Neglect of Agriculture :

- Agriculture was in ruin by the time of the industrial decline, exacerbating the economic crisis.